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Student Tax Returns

Student tax returns 7. Student tax returns Ship Passenger Tax Table of Contents A tax of $3 per passenger is imposed on certain ship voyages, as explained later under Taxable situations. Student tax returns The tax is imposed only once for each passenger, either at the time of first embarkation or disembarkation in the United States. Student tax returns The person providing the voyage (the operator of the vessel) is liable for the tax. Student tax returns Voyage. Student tax returns A voyage is the vessel's journey that includes the outward and homeward trips or passages. Student tax returns The voyage starts when the vessel begins to load passengers and continues until the vessel has completed at least one outward and one homeward passage. Student tax returns The tax may be imposed even if a passenger does not make both an outward and a homeward passage as long as the voyage begins or ends in the United States. Student tax returns Passenger. Student tax returns A passenger is an individual carried on the vessel other than the Master or a crew member or other individual engaged in the business of the vessel or its owners. Student tax returns Example 1. Student tax returns John Smith works as a guest lecturer. Student tax returns The cruise line hired him for the benefit of the passengers. Student tax returns Therefore, he is engaged in the business of the vessel and is not a passenger. Student tax returns Example 2. Student tax returns Marian Green is a travel agent. Student tax returns She is taking the cruise as a promotional trip to determine if she wants to offer it to her clients. Student tax returns She is a passenger. Student tax returns Taxable situations. Student tax returns There are two taxable situations. Student tax returns The first situation involves voyages on commercial passenger vessels extending over one or more nights. Student tax returns A voyage extends over one or more nights if it extends for more than 24 hours. Student tax returns A passenger vessel is any vessel with stateroom or berth accommodations for more than 16 passengers. Student tax returns The second situation involves voyages on a commercial vessel transporting passengers engaged in gambling on the vessel beyond the territorial waters of the United States. Student tax returns Territorial waters of the United States are those waters within the international boundary line between the United States and any contiguous foreign country or within 3 nautical miles (3. Student tax returns 45 statute miles) from low tide on the coastline. Student tax returns If passengers participate as players in any policy game or other lottery, or any other game of chance for money or other thing of value that the owner or operator of the vessel (or their employee, agent, or franchisee) conducts, sponsors, or operates, the voyage is subject to the ship passenger tax. Student tax returns The tax applies regardless of the duration of the voyage. Student tax returns A casual, friendly game of chance with other passengers that is not conducted, sponsored, or operated by the owner or operator is not gambling for determining if the voyage is subject to the ship passenger tax. Student tax returns Exemptions. Student tax returns The tax does not apply when a vessel is on a voyage of less than 12 hours between 2 points in the United States or if a vessel is owned or operated by a state or local government. Student tax returns Prev Up Next Home More Online Publications
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You may be able to deduct certain expenses related to producing or collecting taxable income. This topic addresses many of these expenses. It does not address employment related expenses other than expenses for job search, work clothes, uniforms and union dues.

The Student Tax Returns

Student tax returns Publication 583 - Main Content Table of Contents What New Business Owners Need To Know Forms of BusinessMore information. Student tax returns More information. Student tax returns Exception—Community Income. Student tax returns Exception—Qualified joint venture. Student tax returns More information. Student tax returns More information. Student tax returns Identification NumbersEmployer Identification Number (EIN) Payee's Identification Number Tax Year Accounting Method Business TaxesIncome Tax Self-Employment Tax Employment Taxes Excise Taxes Depositing Taxes Information Returns PenaltiesWaiver of penalty. Student tax returns Business ExpensesBusiness Start-Up Costs Depreciation Business Use of Your Home Car and Truck Expenses RecordkeepingWhy Keep Records? Kinds of Records To Keep How Long To Keep Records Sample Record System How to Get More InformationInternal Revenue Service Small Business Administration Other Federal Agencies What New Business Owners Need To Know As a new business owner, you need to know your federal tax responsibilities. Student tax returns Table 1 can help you learn what those responsibilities are. Student tax returns Ask yourself each question listed in the table, then see the related discussion to find the answer. Student tax returns In addition to knowing about federal taxes, you need to make some basic business decisions. Student tax returns Ask yourself: What are my financial resources? What products and services will I sell? How will I market my products and services? How will I develop a strategic business plan? How will I manage my business on a day-to-day basis? How will I recruit employees? The Small Business Administration (SBA) is a federal agency that can help you answer these types of questions. Student tax returns For information on how to contact the SBA, see How to Get More Information, later. Student tax returns Forms of Business The most common forms of business are the sole proprietorship, partnership, and corporation. Student tax returns When beginning a business, you must decide which form of business to use. Student tax returns Legal and tax considerations enter into this decision. Student tax returns Only tax considerations are discussed in this publication. Student tax returns Your form of business determines which income tax return form you have to file. Student tax returns See Table 2 to find out which form you have to file. Student tax returns Sole proprietorships. Student tax returns A sole proprietorship is an unincorporated business that is owned by one individual. Student tax returns It is the simplest form of business organization to start and maintain. Student tax returns The business has no existence apart from you, the owner. Student tax returns Its liabilities are your personal liabilities. Student tax returns You undertake the risks of the business for all assets owned, whether or not used in the business. Student tax returns You include the income and expenses of the business on your personal tax return. Student tax returns More information. Student tax returns For more information on sole proprietorships, see Publication 334, Tax Guide for Small Business. Student tax returns If you are a farmer, see Publication 225, Farmer's Tax Guide. Student tax returns Partnerships. Student tax returns A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Student tax returns Each person contributes money, property, labor, or skill, and expects to share in the profits and losses of the business. Student tax returns A partnership must file an annual information return to report the income, deductions, gains, losses, etc. Student tax returns , from its operations, but it does not pay income tax. Student tax returns Instead, it “passes through” any profits or losses to its partners. Student tax returns Each partner includes his or her share of the partnership's items on his or her tax return. Student tax returns More information. Student tax returns For more information on partnerships, see Publication 541, Partnerships. Student tax returns Husband and wife business. Student tax returns If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement. Student tax returns Do not use Schedule C or C-EZ. Student tax returns Instead, file Form 1065, U. Student tax returns S. Student tax returns Return of Partnership Income. Student tax returns For more information, see Publication 541, Partnerships. Student tax returns Exception—Community Income. Student tax returns If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U. Student tax returns S. Student tax returns possession, you can treat the business either as a sole proprietorship or a partnership. Student tax returns The only states with community property laws are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Student tax returns A change in your reporting position will be treated as a conversion of the entity. Student tax returns Exception—Qualified joint venture. Student tax returns If you and your spouse each materially participate as the only members of a jointly owned and operated business, and you file a joint return for the tax year, you can make a joint election to be treated as a qualified joint venture instead of a partnership for the tax year. Student tax returns Making this election will allow you to avoid the complexity of Form 1065 but still give each spouse credit for social security earnings on which retirement benefits are based. Student tax returns For an explanation of "material participation," see the Instructions for Schedule C, line G. Student tax returns To make this election, you must divide all items of income, gain, loss, deduction, and credit attributable to the business between you and your spouse in accordance with your respective interests in the venture. Student tax returns Each of you must file a separate Schedule C or C-EZ and a separate Schedule SE. Student tax returns For more information, see Qualified Joint Venture in the Instructions for Schedule SE. Student tax returns Corporations. Student tax returns In forming a corporation, prospective shareholders exchange money, property, or both, for the corporation's capital stock. Student tax returns A corporation generally takes the same deductions as a sole proprietorship to figure its taxable income. Student tax returns A corporation can also take special deductions. Student tax returns The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. Student tax returns However, shareholders cannot deduct any loss of the corporation. Student tax returns More information. Student tax returns For more information on corporations, see Publication 542, Corporations. Student tax returns S corporations. Student tax returns An eligible domestic corporation can avoid double taxation (once to the corporation and again to the shareholders) by electing to be treated as an S corporation. Student tax returns Generally, an S corporation is exempt from federal income tax other than tax on certain capital gains and passive income. Student tax returns On their tax returns, the S corporation's shareholders include their share of the corporation's separately stated items of income, deduction, loss, and credit, and their share of nonseparately stated income or loss. Student tax returns More information. Student tax returns For more information on S corporations, see the instructions for Form 2553, Election by a Small Business Corporation, and Form 1120S, U. Student tax returns S. Student tax returns Income Tax Return for an S Corporation. Student tax returns Limited liability company. Student tax returns A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Student tax returns The members of an LLC are not personally liable for its debts. Student tax returns An LLC may be classified for federal income tax purposes as either a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in regulations section 301. Student tax returns 7701-3. Student tax returns For more information, see the instructions for Form 8832, Entity Classification Election. Student tax returns Identification Numbers You must have a taxpayer identification number so the IRS can process your returns. Student tax returns The two most common kinds of taxpayer identification numbers are the social security number (SSN) and the employer identification number (EIN). Student tax returns An SSN is issued to individuals by the Social Security Administration (SSA) and is in the following format: 000–00–0000. Student tax returns An EIN is issued to individuals (sole proprietors), partnerships, corporations, and other entities by the IRS and is in the following format: 00–0000000. Student tax returns You must include your taxpayer identification number (SSN or EIN) on all returns and other documents you send to the IRS. Student tax returns You must also furnish your number to other persons who use your identification number on any returns or documents they send to the IRS. Student tax returns This includes returns or documents filed to report the following information. Student tax returns Interest, dividends, royalties, etc. Student tax returns , paid to you. Student tax returns Any amount paid to you as a dependent care provider. Student tax returns Certain other amounts paid to you that total $600 or more for the year. Student tax returns If you do not furnish your identification number as required, you may be subject to penalties. Student tax returns See Penalties, later. Student tax returns Employer Identification Number (EIN) EINs are used to identify the tax accounts of employers, certain sole proprietors, corporations, partnerships, estates, trusts, and other entities. Student tax returns If you don't already have an EIN, you need to get one if you: Have employees, Have a qualified retirement plan, Operate your business as a corporation or partnership, or File returns for: Employment taxes, or Excise taxes. Student tax returns Applying for an EIN. Student tax returns You may apply for an EIN: Online—Click on the EIN link at www. Student tax returns irs. Student tax returns gov/businesses/small. Student tax returns The EIN is issued immediately once the application information is validated. Student tax returns By telephone at 1-800-829-4933. Student tax returns By mailing or faxing Form SS-4, Application for Employer Identification Number. Student tax returns When to apply. Student tax returns You should apply for an EIN early enough to receive the number by the time you must file a return or statement or make a tax deposit. Student tax returns If you apply by mail, file Form SS-4 at least 4 weeks before you need an EIN. Student tax returns If you apply by telephone or through the IRS website, you can get an EIN immediately. Student tax returns If you apply by fax, you can get an EIN within 4 business days. Student tax returns If you do not receive your EIN by the time a return is due, file your return anyway. Student tax returns Write “Applied for” and the date you applied for the number in the space for the EIN. Student tax returns Do not use your social security number as a substitute for an EIN on your tax returns. Student tax returns More than one EIN. Student tax returns You should have only one EIN. Student tax returns If you have more than one EIN and are not sure which to use, contact the Internal Revenue Service Center where you file your return. Student tax returns Give the numbers you have, the name and address to which each was assigned, and the address of your main place of business. Student tax returns The IRS will tell you which number to use. Student tax returns More information. Student tax returns For more information about EINs, see Publication 1635, Understanding Your EIN. Student tax returns Payee's Identification Number In the operation of a business, you will probably make certain payments you must report on information returns (discussed later under Information Returns). Student tax returns The forms used to report these payments must include the payee's identification number. Student tax returns Employee. Student tax returns If you have employees, you must get an SSN from each of them. Student tax returns Record the name and SSN of each employee exactly as they are shown on the employee's social security card. Student tax returns If the employee's name is not correct as shown on the card, the employee should request a new card from the SSA. Student tax returns This may occur, for example, if the employee's name has changed due to marriage or divorce. Student tax returns If your employee does not have an SSN, he or she should file Form SS-5, Application for a Social Security Card, with the SSA. Student tax returns This form is available at SSA offices or by calling 1-800-772-1213. Student tax returns It is also available from the SSA website at www. Student tax returns ssa. Student tax returns gov. Student tax returns Other payee. Student tax returns If you make payments to someone who is not your employee and you must report the payments on an information return, get that person's SSN. Student tax returns If you make reportable payments to an organization, such as a corporation or partnership, you must get its EIN. Student tax returns To get the payee's SSN or EIN, use Form W-9, Request for Taxpayer Identification Number and Certification. Student tax returns This form is available from IRS offices or by calling 1-800-829-3676. Student tax returns It is also available from the IRS website at IRS. Student tax returns gov. Student tax returns If the payee does not provide you with an identification number, you may have to withhold part of the payments as backup withholding. Student tax returns For information on backup withholding, see the Form W-9 instructions and the General Instructions for Certain Information Returns. Student tax returns Tax Year You must figure your taxable income and file an income tax return based on an annual accounting period called a tax year. Student tax returns A tax year is usually 12 consecutive months. Student tax returns There are two kinds of tax years. Student tax returns Calendar tax year. Student tax returns A calendar tax year is 12 consecutive months beginning January 1 and ending December 31. Student tax returns Fiscal tax year. Student tax returns A fiscal tax year is 12 consecutive months ending on the last day of any month except December. Student tax returns A 52-53-week tax year is a fiscal tax year that varies from 52 to 53 weeks but does not have to end on the last day of a month. Student tax returns If you file your first tax return using the calendar tax year and you later begin business as a sole proprietor, become a partner in a partnership, or become a shareholder in an S corporation, you must continue to use the calendar year unless you get IRS approval to change it or are otherwise allowed to change it without IRS approval. Student tax returns You must use a calendar tax year if: You keep no books. Student tax returns You have no annual accounting period. Student tax returns Your present tax year does not qualify as a fiscal year. Student tax returns You are required to use a calendar year by a provision of the Internal Revenue Code or the Income Tax Regulations. Student tax returns For more information, see Publication 538, Accounting Periods and Methods. Student tax returns First-time filer. Student tax returns If you have never filed an income tax return, you can adopt either a calendar tax year or a fiscal tax year. Student tax returns You adopt a tax year by filing your first income tax return using that tax year. Student tax returns You have not adopted a tax year if you merely did any of the following. Student tax returns Filed an application for an extension of time to file an income tax return. Student tax returns Filed an application for an employer identification number. Student tax returns Paid estimated taxes for that tax year. Student tax returns Changing your tax year. Student tax returns Once you have adopted your tax year, you may have to get IRS approval to change it. Student tax returns To get approval, you must file Form 1128, Application To Adopt, Change, or Retain a Tax Year. Student tax returns You may have to pay a fee. Student tax returns For more information, see Publication 538. Student tax returns Accounting Method An accounting method is a set of rules used to determine when and how income and expenses are reported. Student tax returns You choose an accounting method for your business when you file your first income tax return. Student tax returns There are two basic accounting methods. Student tax returns Cash method. Student tax returns Under the cash method, you report income in the tax year you receive it. Student tax returns You usually deduct or capitalize expenses in the tax year you pay them. Student tax returns Accrual method. Student tax returns Under an accrual method, you generally report income in the tax year you earn it, even though you may receive payment in a later year. Student tax returns You deduct or capitalize expenses in the tax year you incur them, whether or not you pay them that year. Student tax returns For other methods, see Publication 538. Student tax returns If you need inventories to show income correctly, you must generally use an accrual method of accounting for purchases and sales. Student tax returns Inventories include goods held for sale in the normal course of business. Student tax returns They also include raw materials and supplies that will physically become a part of merchandise intended for sale. Student tax returns Inventories are explained in Publication 538. Student tax returns Certain small business taxpayers can use the cash method of accounting and can also account for inventoriable items as materials and supplies that are not incidental. Student tax returns For more information, see Publication 538. Student tax returns You must use the same accounting method to figure your taxable income and to keep your books. Student tax returns Also, you must use an accounting method that clearly shows your income. Student tax returns In general, any accounting method that consistently uses accounting principles suitable for your trade or business clearly shows income. Student tax returns An accounting method clearly shows income only if it treats all items of gross income and expense the same from year to year. Student tax returns More than one business. Student tax returns When you own more than one business, you can use a different accounting method for each business if the method you use for each clearly shows your income. Student tax returns You must keep a complete and separate set of books and records for each business. Student tax returns Changing your method of accounting. Student tax returns Once you have set up your accounting method, you must generally get IRS approval before you can change to another method. Student tax returns A change in accounting method not only includes a change in your overall system of accounting, but also a change in the treatment of any material item. Student tax returns For examples of changes that require approval and information on how to get approval for the change, see Publication 538. Student tax returns Business Taxes The form of business you operate determines what taxes you must pay and how you pay them. Student tax returns The following are the four general kinds of business taxes. Student tax returns Income tax. Student tax returns Self-employment tax. Student tax returns Employment taxes. Student tax returns Excise taxes. Student tax returns See Table 2 for the forms you file to report these taxes. Student tax returns You may want to get Publication 509. Student tax returns It has tax calendars that tell you when to file returns and make tax payments. Student tax returns Income Tax All businesses except partnerships must file an annual income tax return. Student tax returns Partnerships file an information return. Student tax returns Which form you use depends on how your business is organized. Student tax returns See Table 2 to find out which return you have to file. Student tax returns The federal income tax is a pay-as-you-go tax. Student tax returns You must pay the tax as you earn or receive income during the year. Student tax returns An employee usually has income tax withheld from his or her pay. Student tax returns If you do not pay your tax through withholding, or do not pay enough tax that way, you might have to pay estimated tax. Student tax returns If you are not required to make estimated tax payments, you may pay any tax due when you file your return. Student tax returns Table 2. Student tax returns Which Forms Must I File? IF you are a. Student tax returns . Student tax returns . Student tax returns THEN you may be liable for. Student tax returns . Student tax returns . Student tax returns Use Form. Student tax returns . Student tax returns . Student tax returns Sole proprietor Income tax 1040 and Schedule C 1 or C-EZ (Schedule F 1 for farm business) Self-employment tax 1040 and Schedule SE Estimated tax 1040-ES Employment taxes: • Social security and Medicare taxes and income tax withholding 941 or 944 (943 for farm employees) • Federal unemployment (FUTA) tax 940 Excise taxes See Excise Taxes Partnership Annual return of income 1065 Employment taxes Same as sole proprietor Excise taxes See Excise Taxes Partner in a partnership (individual) Income tax 1040 and Schedule E 2 Self-employment tax 1040 and Schedule SE Estimated tax 1040-ES Corporation or S corporation Income tax 1120 (corporation) 2 1120S (S corporation) 2 Estimated tax 1120-W (corporation only) Employment taxes Same as sole proprietor Excise taxes See Excise Taxes S corporation shareholder Income tax 1040 and Schedule E 2 Estimated tax 1040-ES 1 File a separate schedule for each business. Student tax returns 2 Various other schedules may be needed. Student tax returns Estimated tax. Student tax returns Generally, you must pay taxes on income, including self-employment tax (discussed next), by making regular payments of estimated tax during the year. Student tax returns Sole proprietors, partners, and S corporation shareholders. Student tax returns You generally have to make estimated tax payments if you expect to owe tax of $1,000 or more when you file your return. Student tax returns Use Form 1040-ES, Estimated Tax for Individuals, to figure and pay your estimated tax. Student tax returns For more information, see Publication 505, Tax Withholding and Estimated Tax. Student tax returns Corporations. Student tax returns You generally have to make estimated tax payments for your corporation if you expect it to owe tax of $500 or more when you file its return. Student tax returns Use Form 1120-W, Estimated Tax for Corporations, to figure the estimated tax. Student tax returns You must deposit the payments as explained later under Depositing Taxes. Student tax returns For more information, see Publication 542. Student tax returns Self-Employment Tax Self-employment tax (SE tax) is a social security and Medicare tax primarily for individuals who work for themselves. Student tax returns Your payments of SE tax contribute to your coverage under the social security system. Student tax returns Social security coverage provides you with retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits. Student tax returns You must pay SE tax and file Schedule SE (Form 1040) if either of the following applies. Student tax returns Your net earnings from self-employment were $400 or more. Student tax returns You had church employee income of $108. Student tax returns 28 or more. Student tax returns Use Schedule SE (Form 1040) to figure your SE tax. Student tax returns For more information, see Publication 334, Tax Guide for Small Business. Student tax returns You can deduct a portion of your SE tax as an adjustment to income on your Form 1040. Student tax returns The Social Security Administration (SSA) time limit for posting self-employment income. Student tax returns Generally, the SSA will give you credit only for self-employment income reported on a tax return filed within 3 years, 3 months, and 15 days after the tax year you earned the income. Student tax returns If you file your tax return or report a change in your self-employment income after this time limit, the SSA may change its records, but only to remove or reduce the amount. Student tax returns The SSA will not change its records to increase your self-employment income. Student tax returns Employment Taxes This section briefly discusses the employment taxes you must pay, the forms you must file to report them, and other forms that must be filed when you have employees. Student tax returns Employment taxes include the following. Student tax returns Social security and Medicare taxes. Student tax returns Federal income tax withholding. Student tax returns Federal unemployment (FUTA) tax. Student tax returns If you have employees, you will need to get Publication 15, Circular E, Employer's Tax Guide. Student tax returns If you have agricultural employees, get Publication 51, Circular A, Agricultural Employer's Tax Guide. Student tax returns These publications explain your tax responsibilities as an employer. Student tax returns If you are not sure whether the people working for you are your employees, see Publication 15-A, Employer's Supplemental Tax Guide. Student tax returns That publication has information to help you determine whether an individual is an employee or an independent contractor. Student tax returns If you classify an employee as an independent contractor, you can be held liable for employment taxes for that worker plus a penalty. Student tax returns An independent contractor is someone who is self-employed. Student tax returns Generally, you do not have to withhold or pay any taxes on payments to an independent contractor. Student tax returns Federal Income, Social Security, and Medicare Taxes You generally must withhold federal income tax from your employee's wages. Student tax returns To figure how much federal income tax to withhold from each wage payment, use the employee's Form W-4 (discussed later under Hiring Employees) and the methods described in Publication 15. Student tax returns Social security and Medicare taxes pay for benefits that workers and their families receive under the Federal Insurance Contributions Act (FICA). Student tax returns Social security tax pays for benefits under the old-age, survivors, and disability insurance part of FICA. Student tax returns Medicare tax pays for benefits under the hospital insurance part of FICA. Student tax returns You withhold part of these taxes from your employee's wages and you pay a part yourself. Student tax returns To find out how much social security and Medicare tax to withhold and to pay, see Publication 15. Student tax returns Which form do I file? Report these taxes on Form 941, Employer's QUARTERLY Federal Tax Return, or Form 944, Employer's ANNUAL Federal Tax Return. Student tax returns (Farm employers use Form 943, Employer's Annual Federal Tax Return for Agricultural Employees. Student tax returns ) Federal Unemployment (FUTA) Tax The federal unemployment tax is part of the federal and state program under the Federal Unemployment Tax Act (FUTA) that pays unemployment compensation to workers who lose their jobs. Student tax returns You report and pay FUTA tax separately from social security and Medicare taxes and withheld income tax. Student tax returns You pay FUTA tax only from your own funds. Student tax returns Employees do not pay this tax or have it withheld from their pay. Student tax returns Which form do I file? Report federal unemployment tax on Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return. Student tax returns See Publication 15 to find out if you can use this form. Student tax returns Hiring Employees Have the employees you hire fill out Form I-9 and Form W-4. Student tax returns Form I-9. Student tax returns You must verify that each new employee is legally eligible to work in the United States. Student tax returns Both you and the employee must complete the U. Student tax returns S. Student tax returns Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. Student tax returns You can get the form from USCIS offices or from the USCIS website at www. Student tax returns uscis. Student tax returns gov. Student tax returns Call the USCIS at 1-800-375-5283 for more information about your responsibilities. Student tax returns Form W-4. Student tax returns Each employee must fill out Form W-4, Employee's Withholding Allowance Certificate. Student tax returns You will use the filing status and withholding allowances shown on this form to figure the amount of income tax to withhold from your employee's wages. Student tax returns For more information, see Publication 15. Student tax returns Employees claiming more than 10 withholding allowances. Student tax returns An employer of an employee who claims more than 10 withholding allowances for wages paid can use several methods of withholding. Student tax returns See section 16 of Publication 15. Student tax returns Form W-2 Wage Reporting After the calendar year is over, you must furnish copies of Form W-2, Wage and Tax Statement, to each employee to whom you paid wages during the year. Student tax returns You must also send copies to the Social Security Administration. Student tax returns See Information Returns, later, for more information on Form W-2. Student tax returns Excise Taxes This section describes the excise taxes you may have to pay and the forms you have to file if you do any of the following. Student tax returns Manufacture or sell certain products. Student tax returns Operate certain kinds of businesses. Student tax returns Use various kinds of equipment, facilities, or products. Student tax returns Receive payment for certain services. Student tax returns For more information on excise taxes, see Publication 510, Excise Taxes. Student tax returns Form 720. Student tax returns The federal excise taxes reported on Form 720, Quarterly Federal Excise Tax Return, consist of several broad categories of taxes, including the following. Student tax returns Environmental taxes. Student tax returns Communications and air transportation taxes. Student tax returns Fuel taxes. Student tax returns Tax on the first retail sale of heavy trucks, trailers, and tractors. Student tax returns Manufacturers taxes on the sale or use of a variety of different articles. Student tax returns Form 2290. Student tax returns There is a federal excise tax on certain trucks, truck tractors, and buses used on public highways. Student tax returns The tax applies to vehicles having a taxable gross weight of 55,000 pounds or more. Student tax returns Report the tax on Form 2290, Heavy Highway Vehicle Use Tax Return. Student tax returns For more information, see the instructions for Form 2290. Student tax returns Form 730. Student tax returns If you are in the business of accepting wagers or conducting a wagering pool or lottery, you may be liable for the federal excise tax on wagering. Student tax returns Use Form 730, Monthly Tax Return for Wagers, to figure the tax on the wagers you receive. Student tax returns Form 11-C. Student tax returns Use Form 11-C, Occupational Tax and Registration Return for Wagering, to register for any wagering activity and to pay the federal occupational tax on wagering. Student tax returns Depositing Taxes You generally have to deposit employment taxes, certain excise taxes, corporate income tax, and S corporation taxes before you file your return. Student tax returns Generally, taxpayers are required to deposit taxes through the Electronic Federal Tax Payment System (EFTPS). Student tax returns Any business that has a federal tax obligation and requests a new EIN will automatically be enrolled in EFTPS. Student tax returns Through the mail, the business will receive an EFTPS PIN package that contains instructions for activating its EFTPS enrollment. Student tax returns Information Returns If you make or receive payments in your business, you may have to report them to the IRS on information returns. Student tax returns The IRS compares the payments shown on the information returns with each person's income tax return to see if the payments were included in income. Student tax returns You must give a copy of each information return you are required to file to the recipient or payer. Student tax returns In addition to the forms described below, you may have to use other returns to report certain kinds of payments or transactions. Student tax returns For more details on information returns and when you have to file them, see the General Instructions for Certain Information Returns. Student tax returns Form 1099-MISC. Student tax returns Use Form 1099-MISC, Miscellaneous Income, to report certain payments you make in your trade or business. Student tax returns These payments include the following items. Student tax returns Payments of $600 or more for services performed for your business by people not treated as your employees, such as subcontractors, attorneys, accountants, or directors. Student tax returns Rent payments of $600 or more, other than rents paid to real estate agents. Student tax returns Prizes and awards of $600 or more that are not for services, such as winnings on TV or radio shows. Student tax returns Royalty payments of $10 or more. Student tax returns Payments to certain crew members by operators of fishing boats. Student tax returns You also use Form 1099-MISC to report your sales of $5,000 or more of consumer goods to a person for resale anywhere other than in a permanent retail establishment. Student tax returns Form W-2. Student tax returns You must file Form W-2, Wage and Tax Statement, to report payments to your employees, such as wages, tips, and other compensation, withheld income, social security, and Medicare taxes. Student tax returns For more information on what to report on Form W-2, see the Instructions for Forms W-2 and W-3. Student tax returns Form 8300. Student tax returns You must file Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business, if you receive more than $10,000 in cash in one transaction or two or more related business transactions. Student tax returns Cash includes U. Student tax returns S. Student tax returns and foreign coin and currency. Student tax returns It also includes certain monetary instruments such as cashier's and traveler's checks and money orders. Student tax returns For more information, see Publication 1544, Reporting Cash Payments of Over $10,000 (Received in a Trade or Business). Student tax returns Penalties The law provides penalties for not filing returns or paying taxes as required. Student tax returns Criminal penalties may be imposed for willful failure to file, tax evasion, or making a false statement. Student tax returns Failure to file tax returns. Student tax returns If you do not file your tax return by the due date, you may have to pay a penalty. Student tax returns The penalty is based on the tax not paid by the due date. Student tax returns See your tax return instructions for more information about this penalty. Student tax returns Failure to pay tax. Student tax returns If you do not pay your taxes by the due date, you will have to pay a penalty for each month, or part of a month, that your taxes are not paid. Student tax returns For more information, see your tax return instructions. Student tax returns Failure to withhold, deposit, or pay taxes. Student tax returns If you do not withhold income, social security, or Medicare taxes from employees, or if you withhold taxes but do not deposit them or pay them to the IRS, you may be subject to a penalty of the unpaid tax, plus interest. Student tax returns You may also be subject to penalties if you deposit the taxes late. Student tax returns For more information, see Publication 15. Student tax returns Failure to follow information reporting requirements. Student tax returns The following penalties apply if you are required to file information returns. Student tax returns For more information, see the General Instructions for Certain Information Returns. Student tax returns Failure to file information returns. Student tax returns A penalty applies if you do not file information returns by the due date, if you do not include all required information, or if you report incorrect information. Student tax returns Failure to furnish correct payee statements. Student tax returns A penalty applies if you do not furnish a required statement to a payee by the due date, if you do not include all required information, or if you report incorrect information. Student tax returns Waiver of penalty. Student tax returns These penalties will not apply if you can show that the failures were due to reasonable cause and not willful neglect. Student tax returns In addition, there is no penalty for failure to include all the required information, or for including incorrect information, on a de minimis number of information returns if you correct the errors by August 1 of the year the returns are due. Student tax returns (To be considered de minimis, the number of returns cannot exceed the greater of 10 or ½ of 1% of the total number of returns you are required to file for the year. Student tax returns ) Failure to supply taxpayer identification number. Student tax returns If you do not include your taxpayer identification number (SSN or EIN) or the taxpayer identification number of another person where required on a return, statement, or other document, you may be subject to a penalty of $50 for each failure. Student tax returns You may also be subject to the $50 penalty if you do not give your taxpayer identification number to another person when it is required on a return, statement, or other document. Student tax returns Business Expenses You can deduct business expenses on your income tax return. Student tax returns These are the current operating costs of running your business. Student tax returns To be deductible, a business expense must be both ordinary and necessary. Student tax returns An ordinary expense is one that is common and accepted in your field of business, trade, or profession. Student tax returns A necessary expense is one that is helpful and appropriate for your business, trade, or profession. Student tax returns An expense does not have to be indispensable to be considered necessary. Student tax returns The following are brief explanations of some expenses that are of interest to people starting a business. Student tax returns There are many other expenses that you may be able to deduct. Student tax returns See your form instructions and Publication 535, Business Expenses. Student tax returns Business Start-Up Costs Business start-up costs are the expenses you incur before you actually begin business operations. Student tax returns Your business start-up costs will depend on the type of business you are starting. Student tax returns They may include costs for advertising, travel, surveys, and training. Student tax returns These costs are generally capital expenses. Student tax returns You usually recover costs for a particular asset (such as machinery or office equipment) through depreciation (discussed next). Student tax returns You can elect to deduct up to $5,000 of business start-up costs and $5,000 of organizational costs paid or incurred after October 22, 2004. Student tax returns The $5,000 deduction is reduced by the amount your total start-up or organizational costs exceed $50,000. Student tax returns Any remaining cost must be amortized. Student tax returns For more information about amortizing start-up and organizational costs, see chapter 7 in Publication 535. Student tax returns Depreciation If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, you generally cannot deduct the entire cost as a business expense in the year you acquire it. Student tax returns You must spread the cost over more than one tax year and deduct part of it each year. Student tax returns This method of deducting the cost of business property is called depreciation. Student tax returns Business property you must depreciate includes the following items. Student tax returns Office furniture. Student tax returns Buildings. Student tax returns Machinery and equipment. Student tax returns You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place the property in service. Student tax returns This deduction is known as the “section 179 deduction. Student tax returns ” For more information about depreciation and the section 179 deduction, see Publication 946, How To Depreciate Property. Student tax returns Depreciation must be taken in the year it is allowable. Student tax returns Allowable depreciation not taken in a prior year cannot be taken in the current year. Student tax returns If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U. Student tax returns S. Student tax returns Individual Income Tax Return, or by changing your accounting method. Student tax returns For more information on how to correct depreciation deductions, see chapter 1 in Publication 946. Student tax returns Business Use of Your Home To deduct expenses related to the business use of part of your home, you must meet specific requirements. Student tax returns Even then, your deduction may be limited. Student tax returns To qualify to claim expenses for business use of your home, you must meet both the following tests. Student tax returns Your use of the business part of your home must be: Exclusive (however, see Exceptions to exclusive use, later), Regular, For your trade or business, AND The business part of your home must be one of the following: Your principal place of business (defined later), A place where you meet or deal with patients, clients, or customers in the normal course of your trade or business, or A separate structure (not attached to your home) you use in connection with your trade or business. Student tax returns Exclusive use. Student tax returns To qualify under the exclusive use test, you must use a specific area of your home only for your trade or business. Student tax returns The area used for business can be a room or other separately identifiable space. Student tax returns The space does not need to be marked off by a permanent partition. Student tax returns You do not meet the requirements of the exclusive use test if you use the area in question both for business and for personal purposes. Student tax returns Exceptions to exclusive use. Student tax returns You do not have to meet the exclusive use test if either of the following applies. Student tax returns You use part of your home for the storage of inventory or product samples. Student tax returns You use part of your home as a daycare facility. Student tax returns For an explanation of these exceptions, see Publication 587, Business Use of Your Home (Including Use by Daycare Providers). Student tax returns Principal place of business. Student tax returns Your home office will qualify as your principal place of business for deducting expenses for its use if you meet the following requirements. Student tax returns You use it exclusively and regularly for administrative or management activities of your trade or business. Student tax returns You have no other fixed location where you conduct substantial administrative or management activities of your trade or business. Student tax returns Alternatively, if you use your home exclusively and regularly for your business, but your home office does not qualify as your principal place of business based on the previous rules, you determine your principal place of business based on the following factors. Student tax returns The relative importance of the activities performed at each location. Student tax returns If the relative importance factor does not determine your principal place of business, the time spent at each location. Student tax returns If, after considering your business locations, your home cannot be identified as your principal place of business, you cannot deduct home office expenses. Student tax returns However, for other ways to qualify to deduct home office expenses, see Publication 587. Student tax returns Which form do I file? If you file Schedule C (Form 1040), use Form 8829, Expenses for Business Use of Your Home, to figure your deduction. Student tax returns If you file Schedule F (Form 1040) or you are a partner, you can use the worksheet in Publication 587. Student tax returns More information. Student tax returns For more information about business use of your home, see Publication 587. Student tax returns Car and Truck Expenses If you use your car or truck in your business, you can deduct the costs of operating and maintaining it. Student tax returns You generally can deduct either your actual expenses or the standard mileage rate. Student tax returns Actual expenses. Student tax returns If you deduct actual expenses, you can deduct the cost of the following items: Depreciation Lease payments Registration Garage rent Licenses Repairs Gas Oil Tires Insurance Parking fees Tolls If you use your vehicle for both business and personal purposes, you must divide your expenses between business and personal use. Student tax returns You can divide your expenses based on the miles driven for each purpose. Student tax returns Example. Student tax returns You are the sole proprietor of a flower shop. Student tax returns You drove your van 20,000 miles during the year. Student tax returns 16,000 miles were for delivering flowers to customers and 4,000 miles were for personal use. Student tax returns You can claim only 80% (16,000 ÷ 20,000) of the cost of operating your van as a business expense. Student tax returns Standard mileage rate. Student tax returns Instead of figuring actual expenses, you may be able to use the standard mileage rate to figure the deductible costs of operating your car, van, pickup, or panel truck for business purposes. Student tax returns You can use the standard mileage rate for a vehicle you own or lease. Student tax returns The standard mileage rate is a specified amount of money you can deduct for each business mile you drive. Student tax returns It is announced annually by the IRS. Student tax returns To figure your deduction, multiply your business miles by the standard mileage rate for the year. Student tax returns Generally, if you use the standard mileage rate, you cannot deduct your actual expenses. Student tax returns However, you may be able to deduct business-related parking fees, tolls, interest on your car loan, and certain state and local taxes. Student tax returns Choosing the standard mileage rate. Student tax returns If you want to use the standard mileage rate for a car you own, you must choose to use it in the first year the car is available for use in your business. Student tax returns In later years, you can choose to use either the standard mileage rate or actual expenses. Student tax returns If you use the standard mileage rate for a car you lease, you must choose to use it for the entire lease period (including renewals). Student tax returns Additional information. Student tax returns For more information about the rules for claiming car and truck expenses, see Publication 463, Travel, Entertainment, Gift, and Car Expenses. Student tax returns Recordkeeping This part explains why you must keep records, what kinds of records you must keep, and how to keep them. Student tax returns It also explains how long you must keep your records for federal tax purposes. Student tax returns A sample recordkeeping system is illustrated at the end of this part. Student tax returns Why Keep Records? Everyone in business must keep records. Student tax returns Good records will help you do the following. Student tax returns Monitor the progress of your business. Student tax returns You need good records to monitor the progress of your business. Student tax returns Records can show whether your business is improving, which items are selling, or what changes you need to make. Student tax returns Good records can increase the likelihood of business success. Student tax returns Prepare your financial statements. Student tax returns You need good records to prepare accurate financial statements. Student tax returns These include income (profit and loss) statements and balance sheets. Student tax returns These statements can help you in dealing with your bank or creditors and help you manage your business. Student tax returns An income statement shows the income and expenses of the business for a given period of time. Student tax returns A balance sheet shows the assets, liabilities, and your equity in the business on a given date. Student tax returns Identify source of receipts. Student tax returns You will receive money or property from many sources. Student tax returns Your records can identify the source of your receipts. Student tax returns You need this information to separate business from nonbusiness receipts and taxable from nontaxable income. Student tax returns Keep track of deductible expenses. Student tax returns You may forget expenses when you prepare your tax return unless you record them when they occur. Student tax returns Prepare your tax returns. Student tax returns You need good records to prepare your tax returns. Student tax returns These records must support the income, expenses, and credits you report. Student tax returns Generally, these are the same records you use to monitor your business and prepare your financial statements. Student tax returns Support items reported on tax returns. Student tax returns You must keep your business records available at all times for inspection by the IRS. Student tax returns If the IRS examines any of your tax returns, you may be asked to explain the items reported. Student tax returns A complete set of records will speed up the examination. Student tax returns Kinds of Records To Keep Except in a few cases, the law does not require any specific kind of records. Student tax returns You can choose any recordkeeping system suited to your business that clearly shows your income and expenses. Student tax returns The business you are in affects the type of records you need to keep for federal tax purposes. Student tax returns You should set up your recordkeeping system using an accounting method that clearly shows your income for your tax year. Student tax returns See Accounting Method, earlier. Student tax returns If you are in more than one business, you should keep a complete and separate set of records for each business. Student tax returns A corporation should keep minutes of board of directors' meetings. Student tax returns Your recordkeeping system should include a summary of your business transactions. Student tax returns This summary is ordinarily made in your books (for example, accounting journals and ledgers). Student tax returns Your books must show your gross income, as well as your deductions and credits. Student tax returns For most small businesses, the business checkbook (discussed later) is the main source for entries in the business books. Student tax returns In addition, you must keep supporting documents, explained later. Student tax returns Electronic records. Student tax returns All requirements that apply to hard copy books and records also apply to electronic storage systems that maintain tax books and records. Student tax returns When you replace hard copy books and records, you must maintain the electronic storage systems for as long as they are material to the administration of tax law. Student tax returns An electronic storage system is any system for preparing or keeping your records either by electronic imaging or by transfer to an electronic storage media. Student tax returns The electronic storage system must index, store, preserve, retrieve and reproduce the electronically stored books and records in legible format. Student tax returns All electronic storage systems must provide a complete and accurate record of your data that is accessible to the IRS. Student tax returns Electronic storage systems are also subject to the same controls and retention guidelines as those imposed on your original hard copy books and records. Student tax returns The original hard copy books and records may be destroyed provided that the electronic storage system has been tested to establish that the hard copy books and records are being reproduced in compliance with IRS requirements for an electronic storage system and procedures are established to ensure continued compliance with all applicable rules and regulations. Student tax returns You still have the responsibility of retaining any other books and records that are required to be retained. Student tax returns The IRS may test your electronic storage system, including the equipment used, indexing methodology, software and retrieval capabilities. Student tax returns This test is not considered an examination and the results must be shared with you. Student tax returns If your electronic storage system meets the requirements mentioned earlier, you will be in compliance. Student tax returns If not, you may be subject to penalties for non-compliance, unless you continue to maintain your original hard copy books and records in a manner that allows you and the IRS to determine your correct tax. Student tax returns For details on electronic storage system requirements, see Revenue Procedure 97-22, available in Internal Revenue Bulletin 1997-13. Student tax returns Supporting Documents Purchases, sales, payroll, and other transactions you have in your business generate supporting documents. Student tax returns Supporting documents include sales slips, paid bills, invoices, receipts, deposit slips, and canceled checks. Student tax returns These documents contain information you need to record in your books. Student tax returns It is important to keep these documents because they support the entries in your books and on your tax return. Student tax returns Keep them in an orderly fashion and in a safe place. Student tax returns For instance, organize them by year and type of income or expense. Student tax returns Gross receipts. Student tax returns Gross receipts are the income you receive from your business. Student tax returns You should keep supporting documents that show the amounts and sources of your gross receipts. Student tax returns Documents that show gross receipts include the following. Student tax returns Cash register tapes. Student tax returns Bank deposit slips. Student tax returns Receipt books. Student tax returns Invoices. Student tax returns Credit card charge slips. Student tax returns Forms 1099-MISC. Student tax returns Purchases. Student tax returns Purchases are the items you buy and resell to customers. Student tax returns If you are a manufacturer or producer, this includes the cost of all raw materials or parts purchased for manufacture into finished products. Student tax returns Your supporting documents should show the amount paid and that the amount was for purchases. Student tax returns Documents for purchases include the following. Student tax returns Canceled checks. Student tax returns Cash register tape receipts. Student tax returns Credit card sales slips. Student tax returns Invoices. Student tax returns These records will help you determine the value of your inventory at the end of the year. Student tax returns See Publication 538 for information on methods for valuing inventory. Student tax returns Expenses. Student tax returns Expenses are the costs you incur (other than purchases) to carry on your business. Student tax returns Your supporting documents should show the amount paid and that the amount was for a business expense. Student tax returns Documents for expenses include the following. Student tax returns Canceled checks. Student tax returns Cash register tapes. Student tax returns Account statements. Student tax returns Credit card sales slips. Student tax returns Invoices. Student tax returns Petty cash slips for small cash payments. Student tax returns A petty cash fund allows you to make small payments without having to write checks for small amounts. Student tax returns Each time you make a payment from this fund, you should make out a petty cash slip and attach it to your receipt as proof of payment. Student tax returns Travel, transportation, entertainment, and gift expenses. Student tax returns Specific recordkeeping rules apply to these expenses. Student tax returns For more information, see Publication 463. Student tax returns Employment taxes. Student tax returns There are specific employment tax records you must keep. Student tax returns For a list, see Publication 15. Student tax returns Assets. Student tax returns Assets are the property, such as machinery and furniture you own and use in your business. Student tax returns You must keep records to verify certain information about your business assets. Student tax returns You need records to figure the annual depreciation and the gain or loss when you sell the assets. Student tax returns Your records should show the following information. Student tax returns When and how you acquired the asset. Student tax returns Purchase price. Student tax returns Cost of any improvements. Student tax returns Section 179 deduction taken. Student tax returns Deductions taken for depreciation. Student tax returns Deductions taken for casualty losses, such as losses resulting from fires or storms. Student tax returns How you used the asset. Student tax returns When and how you disposed of the asset. Student tax returns Selling price. Student tax returns Expenses of sale. Student tax returns The following documents may show this information. Student tax returns Purchase and sales invoices. Student tax returns Real estate closing statements. Student tax returns Canceled checks. Student tax returns What if I don't have a canceled check? If you do not have a canceled check, you may be able to prove payment with certain financial account statements prepared by financial institutions. Student tax returns These include account statements prepared for the financial institution by a third party. Student tax returns These account statements must be highly legible. Student tax returns The following table lists acceptable account statements. Student tax returns IF payment is by. Student tax returns . Student tax returns . Student tax returns THEN the statement must show the. Student tax returns . Student tax returns . Student tax returns Check Check number. Student tax returns Amount. Student tax returns Payee's name. Student tax returns Date the check amount was posted to the account by the financial institution. Student tax returns Electronic funds transfer Amount transferred. Student tax returns Payee's name. Student tax returns Date the transfer was posted to the account by the financial institution. Student tax returns Credit card Amount charged. Student tax returns Payee's name. Student tax returns Transaction date. Student tax returns Proof of payment of an amount, by itself, does not establish you are entitled to a tax deduction. Student tax returns You should also keep other documents, such as credit card sales slips and invoices, to show that you also incurred the cost. Student tax returns Recording Business Transactions A good recordkeeping system includes a summary of your business transactions. Student tax returns (Your business transactions are shown on the supporting documents just discussed. Student tax returns ) Business transactions are ordinarily summarized in books called journals and ledgers. Student tax returns You can buy them at your local stationery or office supply store. Student tax returns A journal is a book where you record each business transaction shown on your supporting documents. Student tax returns You may have to keep separate journals for transactions that occur frequently. Student tax returns A ledger is a book that contains the totals from all of your journals. Student tax returns It is organized into different accounts. Student tax returns Whether you keep journals and ledgers and how you keep them depends on the type of business you are in. Student tax returns For example, a recordkeeping system for a small business might include the following items. Student tax returns Business checkbook. Student tax returns Daily summary of cash receipts. Student tax returns Monthly summary of cash receipts. Student tax returns Check disbursements journal. Student tax returns Depreciation worksheet. Student tax returns Employee compensation record. Student tax returns The business checkbook is explained next. Student tax returns The other items are illustrated later under Sample Record System. Student tax returns The system you use to record business transactions will be more effective if you follow good recordkeeping practices. Student tax returns For example, record expenses when they occur, and identify the source of recorded receipts. Student tax returns Generally, it is best to record transactions on a daily basis. Student tax returns Business checkbook. Student tax returns One of the first things you should do when you start a business is open a business checking account. Student tax returns You should keep your business account separate from your personal checking account. Student tax returns The business checkbook is your basic source of information for recording your business expenses. Student tax returns You should deposit all daily receipts in your business checking account. Student tax returns You should check your account for errors by reconciling it. Student tax returns See Reconciling the checking account, later. Student tax returns Consider using a checkbook that allows enough space to identify the source of deposits as business income, personal funds, or loans. Student tax returns You should also note on the deposit slip the source of the deposit and keep copies of all slips. Student tax returns You should make all payments by check to document business expenses. Student tax returns Write checks payable to yourself only when making withdrawals from your business for personal use. Student tax returns Avoid writing checks payable to cash. Student tax returns If you must write a check for cash to pay a business expense, include the receipt for the cash payment in your records. Student tax returns If you cannot get a receipt for a cash payment, you should make an adequate explanation in your records at the time of payment. Student tax returns Use the business account for business purposes only. Student tax returns Indicate the source of deposits and the type of expense in the checkbook. Student tax returns Reconciling the checking account. Student tax returns When you receive your bank statement, make sure the statement, your checkbook, and your books agree. Student tax returns The statement balance may not agree with the balance in your checkbook and books if the statement: Includes bank charges you did not enter in your books and subtract from your checkbook balance, or Does not include deposits made after the statement date or checks that did not clear your account before the statement date. Student tax returns By reconciling your checking account, you will: Verify how much money you have in the account, Make sure that your checkbook and books reflect all bank charges and the correct balance in the checking account, and Correct any errors in your bank statement, checkbook, and books. Student tax returns You should reconcile your checking account each month. Student tax returns Before you reconcile your monthly bank statement, check your own figures. Student tax returns Begin with the balance shown in your checkbook at the end of the previous month. Student tax returns To this balance, add the total cash deposited during the month and subtract the total cash disbursements. Student tax returns After checking your figures, the result should agree with your checkbook balance at the end of the month. Student tax returns If the result does not agree, you may have made an error in recording a check or deposit. Student tax returns You can find the error by doing the following. Student tax returns Adding the amounts on your check stubs and comparing that total with the total in the “amount of check” column in your check disbursements journal. Student tax returns If the totals do not agree, check the individual amounts to see if an error was made in your check stub record or in the related entry in your check disbursements journal. Student tax returns Adding the deposit amounts in your checkbook. Student tax returns Compare that total with the monthly total in your cash receipt book, if you have one. Student tax returns If the totals do not agree, check the individual amounts to find any errors. Student tax returns If your checkbook and journal entries still disagree, then refigure the running balance in your checkbook to make sure additions and subtractions are correct. Student tax returns When your checkbook balance agrees with the balance figured from the journal entries, you may begin reconciling your checkbook with the bank statement. Student tax returns Many banks print a reconciliation worksheet on the back of the statement. Student tax returns To reconcile your account, follow these steps. Student tax returns Compare the deposits listed on the bank statement with the deposits shown in your checkbook. Student tax returns Note all differences in the dollar amounts. Student tax returns Compare each canceled check, including both check number and dollar amount, with the entry in your checkbook. Student tax returns Note all differences in the dollar amounts. Student tax returns Mark the check number in the checkbook as having cleared the bank. Student tax returns After accounting for all checks returned by the bank, those not marked in your checkbook are your outstanding checks. Student tax returns Prepare a bank reconciliation. Student tax returns One is illustrated later under Sample Record System. Student tax returns Update your checkbook and journals for items shown on the reconciliation as not recorded (such as service charges) or recorded incorrectly. Student tax returns At this point, the adjusted bank statement balance should equal your adjusted checkbook balance. Student tax returns If you still have differences, check the previous steps to find the errors. Student tax returns Table 3. Student tax returns Period of Limitations IF you. Student tax returns . Student tax returns . Student tax returns THEN the period is. Student tax returns . Student tax returns . Student tax returns 1. Student tax returns Owe additional tax and situations (2), (3), and (4), below, do not apply to you 3 years 2. Student tax returns Do not report income that you should report and it is more than 25% of the gross income shown on the return 6 years 3. Student tax returns File a fraudulent return Not limited 4. Student tax returns Do not file a return Not limited 5. Student tax returns File a claim for credit or refund after you filed your return Later of: 3 years or 2 years after tax was paid 6. Student tax returns File a claim for a loss from worthless securities or a bad debt deduction 7 years Bookkeeping System You must decide whether to use a single-entry or a double-entry bookkeeping system. Student tax returns The single-entry system of bookkeeping is the simplest to maintain, but it may not be suitable for everyone. Student tax returns You may find the double-entry system better because it has built-in checks and balances to assure accuracy and control. Student tax returns Single-entry. Student tax returns A single-entry system is based on the income statement (profit or loss statement). Student tax returns It can be a simple and practical system if you are starting a small business. Student tax returns The system records the flow of income and expenses through the use of: A daily summary of cash receipts, and Monthly summaries of cash receipts and disbursements. Student tax returns Double-entry. Student tax returns A double-entry bookkeeping system uses journals and ledgers. Student tax returns Transactions are first entered in a journal and then posted to ledger accounts. Student tax returns These accounts show income, expenses, assets (property a business owns), liabilities (debts of a business), and net worth (excess of assets over liabilities). Student tax returns You close income and expense accounts at the end of each tax year. Student tax returns You keep asset, liability, and net worth accounts open on a permanent basis. Student tax returns In the double-entry system, each account has a left side for debits and a right side for credits. Student tax returns It is self-balancing because you record every transaction as a debit entry in one account and as a credit entry in another. Student tax returns Under this system, the total debits must equal the total credits after you post the journal entries to the ledger accounts. Student tax returns If the amounts do not balance, you have made an error and you must find and correct it. Student tax returns An example of a journal entry exhibiting a payment of rent in October is shown next. Student tax returns General Journal Date Description of Entry Debit Credit Oct. Student tax returns 5 Rent expense 780. Student tax returns 00 Cash 780. Student tax returns 00 Computerized System There are computer software packages you can use for recordkeeping. Student tax returns They can be purchased in many retail stores. Student tax returns These packages are very helpful and relatively easy to use; they require very little knowledge of bookkeeping and accounting. Student tax returns If you use a computerized system, you must be able to produce sufficient legible records to support and verify entries made on your return and determine your correct tax liability. Student tax returns To meet this qualification, the machine-sensible records must reconcile with your books and return. Student tax returns These records must provide enough detail to identify the underlying source documents. Student tax returns You must also keep all machine-sensible records and a complete description of the computerized portion of your recordkeeping system. Student tax returns This documentation must be sufficiently detailed to show all of the following items. Student tax returns Functions being performed as the data flows through the system. Student tax returns Controls used to ensure accurate and reliable processing. Student tax returns Controls used to prevent the unauthorized addition, alteration, or deletion of retained records. Student tax returns Charts of accounts and detailed account descriptions. Student tax returns See Revenue Procedure 98-25 in Cumulative Bulletin 1998-1 for more information. Student tax returns How Long To Keep Records You must keep your records as long as they may be needed for the administration of any provision of the Internal Revenue Code. Student tax returns Generally, this means you must keep records that support an item of income or deduction on a return until the period of limitations for that return runs out. Student tax returns The period of limitations is the period of time in which you can amend your return to claim a credit or refund, or the IRS can assess additional tax. Student tax returns Table 3 contains the periods of limitations that apply to income tax returns. Student tax returns Unless otherwise stated, the years refer to the period after the return was filed. Student tax returns Returns filed before the due date are treated as filed on the due date. Student tax returns Keep copies of your filed tax returns. Student tax returns They help in preparing future tax returns and making computations if you file an amended return. Student tax returns Employment taxes. Student tax returns If you have employees, you must keep all employment tax records for at least 4 years after the date the tax becomes due or is paid, whichever is later. Student tax returns For more information about recordkeeping for employment taxes, see Publication 15. Student tax returns Assets. Student tax returns Keep records relating to property until the period of limitations expires for the year in which you dispose of the property in a taxable disposition. Student tax returns You must keep these records to figure any depreciation, amortization, or depletion deduction, and to figure your basis for computing gain or loss when you sell or otherwise dispose of the property. Student tax returns Generally, if you received property in a nontaxable exchange, your basis in that property is the same as the basis of the property you gave up, increased by any money you paid. Student tax returns You must keep the records on the old property, as well as on the new property, until the period of limitations expires for the year in which you dispose of the new property in a taxable disposition. Student tax returns Records for nontax purposes. Student tax returns When your records are no longer needed for tax purposes, do not discard them until you check to see if you have to keep them longer for other purposes. Student tax returns For example, your insurance company or creditors may require you to keep them longer than the IRS does. Student tax returns Sample Record System This example illustrates a single-entry system used by Henry Brown, who is the sole proprietor of a small automobile body shop. Student tax returns Henry uses part-time help, has no inventory of items held for sale, and uses the cash method of accounting. Student tax returns These sample records should not be viewed as a recommendation of how to keep your records. Student tax returns They are intended only to show how one business keeps its records. Student tax returns 1. Student tax returns Daily Summary of Cash Receipts This summary is a record of cash sales for the day. Student tax returns It accounts for cash at the end of the day over the amount in the Change and Petty Cash Fund at the beginning of the day. Student tax returns Henry takes the cash sales entry from his cash register tape. Student tax returns If he had no cash register, he would simply total his cash sale slips and any other cash received that day. Student tax returns He carries the total receipts shown in this summary for January 3 ($267. Student tax returns 80), including cash sales ($263. Student tax returns 60) and sales tax ($4. Student tax returns 20), to the Monthly Summary of Cash Receipts. Student tax returns Petty cash fund. Student tax returns Henry uses a petty cash fund to make small payments without having to write checks for small amounts. Student tax returns Each time he makes a payment from this fund, he makes out a petty cash slip and attaches it to his receipt as proof of payment. Student tax returns He sets up a fixed amount ($50) in his petty cash fund. Student tax returns The total of the unspent petty cash and the amounts on the petty cash slips should equal the fixed amount of the fund. Student tax returns When the totals on the petty cash slips approach the fixed amount, he brings the cash in the fund back to the fixed amount by writing a check to “Petty Cash” for the total of the outstanding slips. Student tax returns (See the Check Disbursements Journal entry for check number 92. Student tax returns ) This restores the fund to its fixed amount of $50. Student tax returns He then summarizes the slips and enters them in the proper columns in the monthly check disbursements journal. Student tax returns 2. Student tax returns Monthly Summary of Cash Receipts This shows the income activity for the month. Student tax returns Henry carries the total monthly net sales shown in this summary for January ($4,865. Student tax returns 05) to his Annual Summary. Student tax returns To figure total monthly net sales, Henry reduces the total monthly receipts by the sales tax imposed on his customers and turned over to the state. Student tax returns He cannot take a deduction for sales tax turned over to the state because he only collected the tax. Student tax returns He does not include the tax in his income. Student tax returns 3. Student tax returns Check Disbursements Journal Henry enters checks drawn on the business checking account in the Check Disbursements Journal each day. Student tax returns All checks are prenumbered and each check number is listed and accounted for in the column provided in the journal. Student tax returns Frequent expenses have their own headings across the sheet. Student tax returns He enters in a separate column expenses that require comparatively numerous or large payments each month, such as materials, gross payroll, and rent. Student tax returns Under the General Accounts column, he enters small expenses that normally have only one or two monthly payments, such as licenses and postage. Student tax returns Henry does not pay personal or nonbusiness expenses by checks drawn on the business account. Student tax returns If he did, he would record them in the journal, even though he could not deduct them as business expenses. Student tax returns Henry carries the January total of expenses for materials ($1,083. Student tax returns 50) to the Annual Summary. Student tax returns Similarly, he enters the monthly total of expenses for telephone, truck/auto, etc. Student tax returns , in the appropriate columns of that summary. Student tax returns 4. Student tax returns Employee Compensation Record This record shows the following information. Student tax returns The number of hours Henry's employee worked in a pay period. Student tax returns The employee's total pay for the period. Student tax returns The deductions Henry withheld in figuring the employee's net pay. Student tax returns The monthly gross payroll. Student tax returns Henry carries the January gross payroll ($520) to the Annual Summary. Student tax returns 5. Student tax returns Annual Summary This annual summary of monthly cash receipts and expense totals provides the final amounts to enter on Henry's tax return. Student tax returns He figures the cash receipts total from the total of monthly cash receipts shown in the Monthly Summary of Cash Receipts. Student tax returns He figures the expense totals from the totals of monthly expense items shown in the Check Disbursements Journal. Student tax returns As in the journal, he keeps each major expense in a separate column. Student tax returns Henry carries the cash receipts total shown in the annual summary ($47,440. Student tax returns 9